UBS unveils its outlook for the Middle East and North Africa region

Oil prices experienced significant Q2 volatility, initially falling to $60 on tariff concerns before spiking above $80 due to the Israel-Iran conflict and then retracing, with UBS maintaining medium-term forecasts of $65-$75 by 2026-2028 while citing geopolitical tensions as a persistent risk. UBS raised GDP forecasts for Saudi Arabia and UAE, projecting 3.5-4% growth in 2024, driven by faster oil GDP recovery and increased OPEC+ output, noting the MENA region's relative insulation from U.S. tariffs. This backdrop leads UBS to favor banking, telecommunications, and IT sectors in MENA, including top picks like Saudi National Bank, over less attractive materials and utilities.

Analysis

Oil prices demonstrated significant second-quarter volatility, initially declining to approximately $60 per barrel on concerns over U.S. tariff impacts on global growth, before spiking above $80 a barrel following the Israel-Iran conflict. This price surge, driven by fears of wider supply disruptions, proved temporary as prices retraced once a ceasefire was established. According to analysis from UBS, while geopolitical tension remains a persistent risk, their medium-term oil price forecasts are unaltered, projecting $65 per barrel in 2026 and rising to $75 by 2028. Concurrently, UBS has raised its GDP forecasts for key OPEC+ producers, citing a faster oil GDP recovery and an August output increase. Saudi Arabia's economy is now expected to grow by 3.5% in 2024 and 4% in 2026, with the UAE projected to expand by 4% and 4.3% in the same periods. The firm notes that the broader Middle East and North Africa (MENA) region is relatively insulated from U.S. tariffs, which, combined with valuations and earnings momentum, makes the region's banking, telecommunications, and IT sectors particularly attractive, while materials and utilities are viewed as less favorable.

Key Decisions for Investors

• Consider the current oil market volatility as event-driven, as major analyst outlooks from UBS suggest a stable medium-term price environment, implying the recent spike was a temporary risk premium.
• Evaluate increasing exposure to MENA equities, particularly in Saudi Arabia and the UAE, to capitalize on upgraded GDP forecasts and the region's relative insulation from global tariff risks.
• Within MENA allocations, favor the banking, telecommunications, and IT sectors, identified by UBS as having attractive fundamentals, while potentially underweighting the materials and utilities segments.